THE BURN BLOG: February 27, 2012

The University of Texas is curating this series of blogs to raise important questions about Energy. This is a unique opportunity for you to join in discussions with some of the world’s brightest energy minds.

Post-Fukushima: the Future of Nuclear Power in the United States

Dale Klein, Ph.D.

February 27, 2012

It’s hard to believe, but it’s been almost a year since a titanic earthquake and tsunami crippled northeastern Japan, triggering a partial meltdown at the Fukushima Daiichi nuclear power station. While much of the resulting media coverage has focused on the events at Fukushima, the true tragedy is that nearly 20,000 people were killed from the earthquake and tsunami. In contrast, we have not learned of any deaths or significant injuries from radiation exposure, though that could change over time.

As the one-year anniversary of the accident nears, questions remain about what Fukushima will mean for the future of nuclear power in the U.S. – namely, will new nuclear facilities move off the blackboard and into construction? The short answer is no – not as long as natural gas remains as cheap and plentiful as it is today.

When I left the Nuclear Regulatory Commission in 2009, the NRC had received 19 applications to build 28 new nuclear plants. Three years later, only two of those plants are under construction – Georgia Power (Southern Company) Vogtle units 3 and 4. And it appears unlikely that any of the remaining units will be built in the near future except possibly in South Carolina or Florida.

Interestingly, and perhaps somewhat surprisingly, support for nuclear power has nearly returned to the pre-Fukushima levels. Most Americans are generally satisfied with safety and security levels at U.S. nuclear power plants. Indeed, it is cheap natural gas, not concerns over nuclear safety or the residual fears from the accident at Fukushima facility that has put any chance of a nuclear renaissance on indefinite hold – at least here in the U.S.

When most of the applications for new nuclear plants were coming into the U.S. NRC, natural gas was relatively expensive, at times reaching a spot market price of $14 per million Btu. Few people expected the price to drop below $3.00/MM Btu. But the surge in shale gas development, brought on by the widespread use of hydraulic fracturing in tandem with horizontal drilling, has transformed the outlook for U.S. energy supplies. Conservative estimates project enough natural gas to last the U.S. several decades, if not more. Natural gas prices have fallen so low that some utilities are operating their natural gas plants as base load and using their coal plants for their peaking units.

Today, the only regions in the U.S. even considering the addition of new nuclear plants are in states that remain under the control of state regulatory commissions. Regulated environments enable utilities to stretch out the high capital costs required to build nuclear facilities and plan for decades of operation, rather than a short-term economic payback.

This landscape could change, of course, but it appears unlikely unless the price of natural gas rises above current levels. Some utilities say nuclear power plants can be economically competitive if natural gas reaches $6/MM Btu, while others say it needs to go as high as $8/MM Btu. (The current price is below $3/MM Btu.)

While most U.S. utilities see natural gas as their “fuel of choice,” the rest of the world continues to build new nuclear power plants – at present there are a total of 63 under construction. China leads the way with 26 new plants underway, followed by Russia with 10, India with six, the Republic of Korea with five and the United Arab Emirates with four.

It remains to be seen what long-term effect the events at Fukushima will have on the U.S. nuclear power industry. But as we consider the advent of shale gas and its effect on America’s energy supplies, we should be mindful of becoming too dependent on a single fuel for base load electricity generation – particularly when that resource has a history of price volatility.

Dale Klein, Ph.D., is Associate Vice Chancellor for Research at the University of Texas System and Associate Director of the University of Texas at Austin’s Energy Institute. He was a member of the Nuclear Regulatory Commission from 2006-2010 and served as chairman from 2006-2009.

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3|12|2012 On Thursday, the American Nuclear Society released a report documenting what happened at Fukushima Daiichi and making recommendations to U.S. regulators, the nuclear industry and the ANS itself. The committee was co-chaired by Dale Klein.

RESPONSE TO DALE KLEIN

Make Nuclear Power More Efficient and Cost Competitive with Natural Gas

Charles D. Ferguson

Dale Klein’s thoughtful essay underscores the point that the highest economic hurdle for new nuclear power reactors is the competition against the low cost of abundant natural gas. While U.S. supplies of natural gas—especially shale gas accessed by hydraulic fracturing—appear plentiful, the price may take a sharp turn upwards and experience wide swings if the United States substantially increases its exports of this fossil fuel and if natural gas becomes a commodity that is as globally traded as oil is.So, can a case be made for investing in nuclear reactors in the United States? One major incentive that the United States could apply is to place a price on carbon emissions. This would favor nuclear plants, which do not emit greenhouse gases, such as carbon dioxide, and wouldn’t favor coal and natural gas plants, which do emit these gases. But the political will has been lacking to levy such a fee or to establish a cap-and-trade system. Instead, the federal government has offered financial subsidies to stimulate the construction of another handful of reactors. Rather than subsidies, a better strategy would be for nuclear power plants to compete with natural gas plants by becoming more efficient. Presently, commercial nuclear plants only convert about one-third of nuclear fission energy to electricity, whereas natural gas plants can convert about half the energy content of gas to electricity. More advanced nuclear reactors, called Generation IV, could achieve comparable energy efficiencies, but high construction costs and a history of technical problems with certain reactor types have dissuaded commercial investors. A continuing role for government in the nuclear industry is to fund research and development of these technologies to determine if they can cross into commercial viability.

CHARLES D FERGUSON, President, Federation of American Scientists, is the author of Nuclear Energy: What Everyone Needs to Know, and has worked as a senior analyst for nuclear proliferation and arms control issues for the FAS nuclear security program.

RESPONSE TO DALE KLEIN

Ellen Vancko

Dale Klein correctly notes that there are significant obstacles to building new nuclear reactors in the United States. By focusing on high natural gas prices, however, he overlooks other major challenges facing the industry.

Even before natural gas prices dropped to a generational low, the price tag for a new reactor, as compared with other low-carbon alternatives, was a formidable barrier. Estimated construction costs have quadrupled in the last decade. Wall Street won’t finance new reactors unless taxpayers and ratepayers bear the risk. To entice investors, the nuclear industry unsuccessfully lobbied Congress for more than $100 billion in federal loan guarantees and other incentives. Now, after the debacle of the bankrupt solar panel company, Solyndra, there will be no additional loan guarantees for any energy technology in the foreseeable future. Finally, the government’s failure to put a price on carbon emissions or establish a permanent waste repository has further dimmed the industry’s prospects, while the disaster at Fukushima reminded everyone of the inherent risks of this potentially dangerous technology.

Given these factors, it is highly unlikely that more than a handful of reactors will be built in the United States in the next two decades. The few that do come online will be built by utilities in regulated markets where the costs and risks have been shifted to retail ratepayers. Until the industry demonstrates that it can build a few reactors on time and on budget and address the long-term waste problems, proposals for new reactors will continue to face headwinds regardless of the cost of natural gas.

RESPONSE TO DALE KLEIN

Kate Marvel

We often hear that nuclear is required for energy security, or that increasing nuclear capacity will help reduce our dependence on foreign oil. But this isn’t a fair comparison. In the United States, nuclear is used to generate electricity for residential, commercial, and industrial purposes. Petroleum, on the other hand, is used mainly for transportation and industrial applications. In the U.S., only a tiny fraction of oil consumption is used to generate electricity. Increasing our reliance on nuclear will not reduce our reliance on oil in the short term. In the narrowest sense of the word, the U.S. electricity sector is secure. We are, in the words of Ohio’s Gov. John Kasich, “the Saudi Arabia of coal”.

Unlike coal, however, nuclear power emits no carbon dioxide emissions in the course of generating electricity. There has been much speculation that a world concerned about climate change will see a “nuclear renaissance”. Even when the entire nuclear fuel cycle is considered, the emissions associated with nuclear power are still lower than fossil fuel combustion. This, along with the ability of nuclear to provide consistent “baseload” power (by contrast to weather-dependent renewables), has led many countries to conclude that the technology’s benefits outweigh its many risks. The nuclear renaissance may be a reality in emerging economies, particularly China, but also in countries as diverse as Turkey and Vietnam. In the United States, there has been no such “renaissance” to speak of, and the tepid pace of development Dr. Klein describes is consistent with the recent past.

The geography of nuclear power is changing. The accident at Fukushima does not appear, in the near term, to have significantly affected the nuclear cost-benefit calculation in the United States. But, whatever shape our future policies may take, they are unlikely to have much impact on the overall prospects for nuclear power—a global picture in which the U.S. is poised to play a dwindling role.

KATE MARVEL is a former William J. Perry Fellow at Stanford University. Her work focuses on security issues relating to climate change and energy. She earned a PhD in theoretical physics at the University of Cambridge and a BA in physics and astronomy from UC Berkeley.

RESPONSE TO DALE KLEIN

Mujid Kazimi

On March 1, 2012, legislation was introduced by Senator Jeff Bingaman (D-NM), Chair, Senate Energy Committee that would require 24 percent of the electricity generated by each large utility in 2015 to come from clean energy sources. This portion would increase to 84 percent by 2035. Currently, nuclear power provides 20 percent of the electricity used in the U.S. produced by 104 reactors on 71 sites. Renewable energy accounts for 8 percent of total electricity production. Thus, the proposed requirement can be met, on average, in the short term, although some utilities have to adjust their portfolio.

Meeting the requirement in 2035 is a much tougher proposition. It would imply the replacement of many of the coal plants that currently provide 45 percent of the electricity. While natural gas emits less carbon to the atmosphere than coal, it still emits more than half as much per unit energy. Renewable and nuclear energy stand to benefit from the incentives in the proposed legislation, as they emit no carbon. Given the intermittent nature of renewable energy, nuclear is the only way to provide the needed power on a large scale to significantly reduce carbon emissions.

From an economic standpoint, nuclear plants need to be licensed and built in shorter time periods than they were in the1980s. If Southern Company’s newly licensed Vogtle 3 and 4 reactors, the first new generation of nuclear plants in this country, take less than five years to build and financing is available at modest rates, nuclear plants will provide a more secure source for economic electricity over the long run than the more turbulent cost of gas-produced electricity.

MUJID S. KAZIMI is the Tokyo Electric Power Company (TEPCO) Professor of Nuclear Engineering at the Massachusetts Institute of Technology, a Professor of Mechanical Engineering, and the Director of the Center for Advanced Nuclear Energy Systems (CANES)

RESPONSE TO DALE KLEIN

Steven Collins

Dale Klein makes a compelling argument for a diversified energy supply that includes nuclear power as an integral part of the mix. On balance, I agree. But getting there will require the right economic incentives and a political framework that confers legitimacy and inspires confidence in how we manage our energy supply.

For the economics to work out, consumers need to pay the full cost of their energy portfolio, and that will happen only when we put a price on carbon. Yet pricing carbon into our energy decisions will have limited effect as long as the price and time to build new nuclear power plants remain so great. Construction costs for new nuclear plants in the US have soared, from roughly $2,000 per kilowatt in the 1970s to anywhere from $3,000 for a pressurized water reactor to $9,000 per kilowatt hour for reactors using the APR1000 design, according to The Economist. Contrast that with less than $1,000 per kilowatt to build a large gas-fired plant. Standardization of plant designs will help rein in costs, as will a continuation of low interest rates. Yet unless permitting and construction timelines can be shortened, and utilities have some means of passing along costs to consumers, it’s hard to see the economics shifting dramatically in nuclear power’s favor.

Even if nuclear plants win on economics, the mismanagement of the meltdowns at Fukushima drives home the importance of good governance. This starts with transparency of decision making and regulatory structures immune to capture by industry. The bungled responses of TEPCO and regulators in Japan, coupled with the incompetence and arrogance shown by high-level policy makers, while in many ways idiosyncratic to Japan’s politics, tarnish the image of nuclear power everywhere. And while I have confidence in the US regulatory framework not to commit mistakes seen in Japan, I would like to see the ideals of republican government embedded more deeply into our governance of energy. This would entail giving citizens more voice in deciding on the energy mix appropriate to their regions and in the siting of power plants and related infrastructure. Nuclear power plants in the US have, on balance, an admirable safety record. Yet in the end, those who live in their shadows bear the greatest risk of an accident, small though it may be. It is only right that they have a meaningful say in whether they live with that risk.

STEVEN COLLINS is Associate Professor at the Bothell Campus of the University of Washington, with joint appointments in the Interdisciplinary Arts and Sciences and Science and Technology Programs. With degrees in chemical engineering (BS) and foreign affairs (MA and PhD), all from the University of Virginia, he seeks through his teaching and scholarship to understand how new technologies emerge and evolve, the role of political and economic institutions in shaping technological change, and the possibilities for directing technological change toward socially and environmentally sustainable ends.

RESPONSE TO DALE KLEIN

George Mobus

Most economists believe that market forces will somehow take care of energy supplies but this turns out to be a false belief. Most of the world’s energy comes from fossil fuels, finite non-renewable resources, which are currently being depleted at unprecedented rates. There is evidence that the world has already reached a peak of conventional oil production and the same will apply to coal and natural gas in time.

Dr. Kline’s piece focuses on the role of nuclear energy and he asserts that what is keeping the industry from growing is the abundance of cheap natural gas, used to produce electricity. The implication is that nuclear power sourced electricity could be a viable substitute for coal and/or natural gas with the right economic conditions. There are two ironies at work that are exposed by biophysical economic analysis. One is that the current abundance of gas may turn out to be a short-lived phenomenon. The initial production rates of non-conventional gas wells (hydro-fractured shale and horizontal drilling) are quite a bit higher than conventional wells. But it turns out that the fall-off rate of production is also much steeper in wells that have been in production for a while. The total volume production of these wells may very well be much less than would have been expected if comparing them to conventional well production dynamics. The current estimates for total technically recoverable gas that one hears bandied about appear to be based on assumptions derived from the conventional well experience. We see a growing amount of evidence that this will not be the case and that these estimates of cheap gas for several decades will prove to be illusions. According to Dr. Kline’s analysis, if that happens, nuclear energy may enjoy an economic advantage.

Unfortunately the second ironic fact may thwart nuclear energy even more. Biophysical economics is largely based on the principle of energy return on energy invested (EROI). It takes energy to get energy, just like it takes investment money to make money. In today’s world the EROI for fossil fuels is quite high, on the order of 20-30 to 1. For a single barrel of oil invested in drilling, refining, and delivering petroleum products to markets, the economy enjoys a return of between 20 and 30 barrels worth of energy! Several estimates for the EROI of nuclear have been made and range from lows of 5 to 1 to highs of 15 to 1. Unless nuclear engineers can devise plant designs that provide EROI values at the higher end (and above) they will be competing with fossil fuels for some time to come. Of course it is true that the EROI of fossil fuels is in decline as the easy to extract sources are exploited and we have to chase more expensive sources such as deep water drilling, shale, and tar sands. It is feasible that the EROI of nuclear might be boosted making it competitive with some future EROI for fossil fuels. But to make the comparison work, our economies will need to transition more of our work to electricity, e.g. electrifying greater amounts of the transportation systems.